Chaos has always worked in Tesla's favor — but that could be about to change

Over the past decade, Tesla has been very successful at creating two products: sexy electric luxury cars and frequent chaos.

The first product is self-evident — just look at a Tesla Model S sedan or Model X SUV. Take a ride in one. The whole experience is aesthetically and emotionally thrilling, overlaid with the delightful impression that you're helping to save the world by emitting exactly zero greenhouse gasses from the non-existent tailpipe.

The second sounds bad, but it isn't. A long time ago, I took a deep look into so-called "chaos theory" and learned with the right intellectual framework, chaos can be understood as a sort of dynamic orderliness, a natural process governed by complicated mathematics that demands a lot of intense thinking to understand.

That's Tesla in a nutshell. And that's why Wall Street has been struggling so mightily to model the company over the past few years, with analysts' price targets ranging from a bearish $150-per-share to a far more bullish $400-ish predictions.

Tesla is hard to define

Tesla also proposes a definitional challenge: the biggest part of the business is cars, and the auto industry isn't difficult to figure out. But Tesla is also an energy storage company, a battery company, a software firm, and provider of electric-vehicle charging, and now a solar-energy provider, following the 2016 acquisition of SolarCity. There's a connection to CEO Elon Musk's space-exploration company, SpaceX, and Musk is given to creating adjacent projects on a whim. Think of the Hyperloop or the new "Boring Company," the latter set up to dig vast tunnels under Los Angeles to alleviate freeway traffic.

The chaos has been useful. Musk is comfortable with it, and it's enabled Tesla to sustain an elevated market cap — it pushed passed $40 billion during a market rally early this year — and to distract analysts and experts from dealing with Tesla's most basic problem: that at its core, Tesla is a carmaker that's not very good (yet) at making cars.

This isn't to say that Tesla makes bad cars. As Consumer Reports recently noted, Tesla is the most beloved car brand in America. Tesla owners adore its cars, and Tesla has done yeoman work over the past two years both at ramping up production to nearly 100,000 vehicles annually and addressing reliability issues. At Business Insider, we've driven just about everything the company sells, and we've been uniformly impressed.

Missing its marks

But Tesla hasn't hit the manufacturing marks that one would expect from a 10-year-old car company. What a big automaker can easily achieve in a year, Tesla takes far longer to match. Witness the Chevy Bolt: General Motors revealed, engineered, launched, and is now mass-producing a $30,000 EV with a range of 238 miles on a single charge — and it accomplished all this in about one year. If Tesla is lucky, it will hit full production of its own Model 3 by sometime next year, taking anywhere from six-to-12 months longer.

The Tesla Model 3.
YouTube/Motor Trend

Musk's chaos-surfing talents have allowed Tesla to prosper off what's now a recognizable pattern with its stock price. Big spikes are invariably followed by deep swoons. There have been a few periods of steady growth, but volatility has been the rule, not the exception. The chaos tends to cluster around a $200-per-share level, sometimes dipping lower, sometimes surging higher.

This gives Musk a predictable valuation for the company when he and his team want to return to the markets to raise capital, as many analysts now think they will do this year. Tesla currently has about $3.5 billion is cash on hand, enough to cover the $2 billion to $2.5 billion that it will cost to launch the Model 3, which leaves Tesla with the $1 billion cushion it favors.

That's the critical piece of order in Tesla's financial chaos, which really is head-spinning when you think about it: a $30-billion-plus market-cap company that builds fewer vehicles in a year than GM does in a month, has rarely shown a profit, and is preparing to attack the least lucrative part of the auto business with the Model 3.

Chaos on top of chaos

There are other examples of Tesla chaos, behaviors that are completely foreign to the rest of the auto industry. Musk reporting that he slept near the assembly line while the production kinks of the Model X were being worked out. Musk spending half his time designing SpaceX missions to circumnavigate the Moon and colonize Mars. The sideline tunneling thing. CFO Jason Wheeler leaving after only about a year on the job.

This stuff doesn't happen at Ford or Toyota. If it didn't, it would be extremely alarming.

However, in the next few years, I think it will fade at Tesla, as the company grows from being a manufacturer of niche electric mobility for an early adopting elite to becoming a purveyor of EVs for the rest of us.

It's been a wild ride for investors.
Markets Insider

Unfortunately for Tesla, the rest of us don't have much tolerance for chaos. The vertiginous math of Tesla's ascent will be less acceptable once the company levels off. For example, while the first Model 3 customers may be okay with plunking down $1,000 each to wait two years or more for their car, the next wave of buyers won't be so patient. They'll want their car more or less right away. They'll also want to bring it in for repairs and get it back the same day, so Tesla is going to have to add a lot more service centers before 2020.

For Tesla as a company, chaos has been a useful commodity. You can't begrudge Tesla for creating it and then deploying it in its favor. But Tesla is now morphing into being a sustainable energy and transportation conglomerate, with the scale to build one million vehicles a year and install lots of solar panels and solar roofs, not to mention assemble more lithium-ion batteries than anyone on Earth.

It isn't really a big company yet, even though it has a big-company market cap. But if all goes according to plan, it will be a big company — and big companies tend to be chaos slayers, not chaos creators.

Frankly, it remains to be seen whether Tesla can thrive in a less chaotic environment. But those days are coming, and we all need to get ready.